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State of demand and excessive indebtedness: Evidence from Chinese listed manufacturing firms

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  • Sun, Wei
  • Geng, Danqing
  • Dong, Kaiqiang

Abstract

This paper provides new evidence about how demand affects debt financing decisions of manufacturing firms in China. The results show that demand and price have a positive impact on total and net new liabilities in a highly expanding state, which however are negatively correlated with total liabilities but unrelated to net new liabilities in a contraction. The findings indicate that firms are driven to increase their debt levels actively in an expansion due to the rise of demand and price, however the shrinking demand and price worsening solvency will lead to a passive increase of debts in a contraction.

Suggested Citation

  • Sun, Wei & Geng, Danqing & Dong, Kaiqiang, 2021. "State of demand and excessive indebtedness: Evidence from Chinese listed manufacturing firms," Finance Research Letters, Elsevier, vol. 42(C).
    • Handle: RePEc:eee:finlet:v:42:y:2021:i:c:s1544612321000234
    DOI: 10.1016/j.frl.2021.101942
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    References listed on IDEAS

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    2. Ren, Xiaohang & Qin, Jianing & Jin, Chenglu & Yan, Cheng, 2022. "Global oil price uncertainty and excessive corporate debt in China," Energy Economics, Elsevier, vol. 115(C).

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    More about this item

    Keywords

    State of demand; Excessive indebtedness; Deleveraging policy; China;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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